Taxation Law and Practice - Assignment Example

Taxation Law and Practice, Australia Customer Inserts His/Her Name Customer Inserts Grade Course Customer Inserts Tutor’s Name 14, 08, 2011 Part A, Solution 1. Who is the Inspector-General of Taxation? This is an independent statutory office advising the government of Australia on ways of improving tax administration mainly having the interest of the taxpayer as it priority. This office has been established under the Inspector-General of Taxation Act 2003 and has mandated the Inspector general of taxation to review systems established by Australian Tax Office to administer tax laws and also administrative systems established by tax laws affecting tax payers. 2. What is the objective of the Inspector-General of Taxation? These are the core functions of the Inspector – General of taxation as defined in the Inspector-General of Taxation Act 2003. They include Reviewing systems established by the Australian Tax Office to administer tax laws especially those dealing with communication to the taxpayers. Reviewing the administrative systems established under the tax laws Reporting to the Australian government on the outcome and subject of the reviews while recommending required changes in the tax administration systems. 3. Where are the Inspector-General of Taxation and his staff based? Inspector-General of Taxation and his staff are based in Sydney Australia an independent office of the executive arm of government. 4. Does the Inspector-General of Taxation deal with individual taxpayer matters No. The office Inspector-General of Taxation does not deal with individual tax payers as this is carried out by the officer of the ombudsman. 5. Who has the statutory responsibility for administering the Commonwealth tax system? The parliament of the commonwealth through the office of the Governor General has the statutory responsibility of administering the commonwealth tax system as outlined in in the commonwealth of Australia Constitution Act. 6. From where does the Commonwealth Government derive its power to make laws with respect to taxation? The section 51(ii) of the constitution of Australia gives the Commonwealth Government its power to make laws with respect to taxation which are non-discriminatory to the various states. 7. What does ITAA36 stand for? ITAA36 stands of Income Tax Assessment Act 1936. It is a statutory law enacted by the parliament of Australia to regulate taxation of liable individuals in Australia. 8. Which Divisions of the tax legislation contain the provisions relating to capital gains tax? Capital Gains Tax is part of the commonwealth taxes that relates to gains investments. The provisions relating to capital gains tax are stated in the Income Tax Assessment Act 1997 (ITAA97) section 104-5. 9. Is a definition of the term ‘income’ found anywhere in the tax legislation? Income Tax Assessment Act 1936 (ITAA36) Section 25A of Division 2 defines assessable income for tax purposes in Australia but does not categorically define the term ‘Income’ per se. 10. What is the title of Taxation Ruling TR98/17? Who does this Ruling apply to? The title of the Taxation Ruling TR98/17 is Income tax: residency status of individuals entering Australia. The ruling relates the issue of residency of individuals entering Australia which is an importance aspect in the determination of taxable income. The individual affected by the ruling are; a) Migrants; b) academics teaching or studying in Australia; c) students studying in Australia; d) visitors on holiday; e) Workers with pre-arranged employment contracts. Part B, Solution Will La La be a resident of Australia for Income tax purposes in the 2010/2011 year of income? La La being a citizen of UK and on a tour of Australia in order to perform as a popstar in an event makes income while on Australia constituting tour income of $450,000 with expenses of $ 385,000, appearance fee of $15,000 on TV show and also wins a completion that earns her a cash prize of $ 500 and a weekend at a holiday apartment worth $ 500. All these we made within a period of 21/2 months initial visit of Australia. Residence and source are two cardinal considerations when it comes to taxation of individual in Australia (Books, 2010). According to Mills (2007), being resident or non-resident with regards to taxation in Australia has implication on the tax rate applied, tax free threshold and the Medicare levy. Determining La La’s residency therefore has major implication with regards to the calculation of her tax burden which varies with regards to residency status. First, only Australian residents can obtain tax free threshold of $6,000 and $11,000 with low income rebate. Non-residents are subject to tax payable on $1 at the rate of -29% on only Australian derived income even though there are no Medicare Levy and rebates. Australian residents are subject to income tax on all ordinary and statutory income derived from all over the world unlike non-residents (Woellner, Barkoczy & Evans, 2009). In order to determine one’s residence status, Section 6(1) of Income Tax Assessment Act 1936 gives some statutory definition of a resident being a person other than a company who resides in Australia and includes a person whose domicile is in Australia unless the commissioner is convinced otherwise. A person who has been in Australia, continuously on intermittently for more than 183 days or half year of the year of income unless the commissioner is convinced that his usual place of abode is outside Australia is also considered a resident of Australia for tax purposes. The same Act also defines a resident as a person who is a member of superannuation scheme established by deed under the superannuation Act 1990 or who is an eligible employee for the purposes of superannuation Act 1976 or a spouse or a child under 16 years of such a person. Being a resident and non-resident are mutually exclusive there a person can either be a resident or a non-resident (Valerie, 2009). This is clearly defined under Section 6(1) of Income Tax Assessment Act 1936 where a non-resident is defined as a “person who is not a resident of Australia”. Consequently this creates the four tests for residency in Australia. These are; residence according to ordinary concepts, residence according to domicile, permanent place of abode and superannuation test. For us to determine the residency of La La, it is imperative that she be passed through the four tests of Australian residency. From the ordinary concepts test, La La fails to be a resident of Australia since she knew deep down herself that she was in Australia for a short time and had a family in UK. Ordinarily, where one’s family stays is always construed to be one’s residence. In the ordinary terms therefore, La La is a non-resident of Australia. In Taxation Ruling TR98/17, it is clear that La La is not a resident of Australia since her family is still in UK and her business ties is demonstrated in her monthly recording arrangements and visits to UK. La La fails to meet the domicile test on the grounds that she is known to have domicile of origin in the UK and has not yet had a domicile of choice to be Australia since she still has a family in the UK and her intentions to stay in Australia are currently unclear. Even though La La has an intention of staying in Australia, it is not clear whether this relates on to domicile or residency, it will be therefore fair to assume that domicile of choice does not necessary mean residency for tax purposes. The test of permanent place of abode in the financial year 2010/2011 is currently unclear with regards to La La, since she has not yet decided on the fate of her family. Currently it is still assumed the she is in Australia only to work but if she could get some similar work in UK, she could go back. This therefore, fails La La in passing the test of Australian residency on the grounds that her permanent place of abode currently is in the UK as she lives even in a temporary leased apartment in Austria. 183 day rule will ultimately knock La La outside the Australian Residency bracket since she had stayed in Australia for approximately 51/2 months in the 2010/2011 year of income consequently less than have year. The numerical value of the rule has been declared as strictly imposed in the case of Wilkie v FCT [1952] 1 All ER 92, consequently La La will fail to be a resident of Australia in 2010/2011 year of income. Lastly La La will automatically fail the superannuation test, consequently failing all the residency tests consequently making her a non-resident for income tax purposes in Australia for the 2010/2011 year of income. Amounts constituting assessable income for La La Taxable income in taxation of personal income is a critical amount that has to be accurately determined so the accurate tax liability is calculated. Tax payer’s taxable income is arrived at after deducting allowable expenses from the assessable income. This is in accordance to Section 4-15(1) of the Income Tax Assessment Act 1997 and Section 48 of Income Tax Assessment Act 1936. Earnings by La La for the year of income 2010/2011 includes; tour fee of $450,000 and expenditure of $385,000, TV show appearance fee $15,000, Dance competition ; weekend out $500 and Cash price $500, Employment income of $ 45000, tips on employment $2,500 and dance competition cash price $ 200. Ordinarily all this except the expenses constitutes income to La La. However in ordinary meaning, to calculate assessable income for La La, incomes must be net of allowable deductions (Ross, 2008). For the case of La La all incomes except Weekend out shall be assessable income since they meet the qualities of assessable incomes. The amounts will constitute non-residents’ incomes derived from Australia in that; they have been earned, received periodically in cash and convertible to cash. To be more specific weekend out shall not constitute an income since it is a non-cash benefit that cannot be easily converted to money. Tips constitute assessable income since it’s a gift but for official reasons. Without her job, La La cannot earn the tips therefore making it part of the employment income. References Books, L 2010, Taxation in Australia: Capital gains Tax in Australia, Superannuation in Australia, tertiary Education Fees in Australia, General Books, Canberra. Clark, BC & Miller, LG 2000, Taxation and sport in Australia, Federation Press, Melbourne. Income Tax Assessment Act 1997, Australian Tax office Legal database 2010, accessed 16 August 2011, http://law.ato.gov.au/atolaw/Browse.htm?ImA=fake&Node=0~0~1&OpenNodes =,0~0,0&DBTOC=05%3APLR%3ATaxation%3AINCOME%20TAX%20ASSESSMENT%20ACT%201997%3AView%20list%20of%20provisions%3B#0~0~1 Mills, S 2007, Taxation in Australia, Macmillan and Co., California. Ross, WP 2008, Income taxation in Australia: principles of income, deductibility, and tax accounting, 1st ed, Law Books Co, Perth. Valerie, AB 2009, Defiance in Taxation and Governance: Resisting and Dismissing authority in Democracy, Edward Elgar Publishing, New York. Woellner, R, Barkoczy, S & Evans, C 2009, Australian Taxation Law 2009, CCH Australia Limited, Brisbane. Read More